‘Right-to-Work’ States Tend to Have Lower Wages, More Jobs – WSJ.com

‘Right-to-Work’ Economics

States That Bar Mandatory Union Dues Tend Toward More Jobs but Lower Wages

Employees on the assembly line at Ford Motor Co.’s Dearborn Truck Plant in Dearborn, Mich. The state enacted a right-to-work law this past week.

By adopting a “right-to-work” law this week, Michigan is joining a group of states where wages tend to be lower, but job growth stronger, than states that don’t have the law.

But gauging how much of this divergence in paychecks and employment is a result of the laws is difficult to do.

Right-to-work laws, which allow workers in unionized workplaces to opt out of paying union dues, were first adopted in the South decades ago as part of a larger drive to lure factory jobs from the heavily unionized North. By that measure, those early laws—in conjunction with other business-friendly policies—were highly successful.

Now, the trend is spreading to the heart of the old Rust Belt itself, in the wake of Republican gains in the region in the 2010 elections. Earlier this year, Indiana passed such a law, and on Tuesday, the birthplace of the United Auto Workers union, Michigan, became the 24th state to adopt such a measure.

Critics of the laws say they hold down wages. And indeed, private-sector employees in right-to-work states earned an average of $738.43 a week in the past 12 months, 9.8% less than workers in states without such laws, according to an analysis of Labor Department data that didn’t include health-care and other benefits. But proving cause and effect on wages is difficult, since many factors influence what workers are paid in a given locale, such as whether the mix of businesses are concentrated in higher-paying industries.

Some economists say when differences in cost of living are taken into account, wages are roughly the same—or even higher—in right-to-work states.

Meanwhile, private employment has grown 4.9% in right-to-work states over the past three years, versus 3.9% in other states, according to an analysis of Labor Department data. This disparity is particularly stark in the factory sector: Manufacturing employment has grown 4.1% in right-to-work states over the past three years, compared with less than 3% in other states. Meanwhile, factory jobs pay 7.4% less in right-to-work states.

Such averages tend to obscure wide variations among individual states, however. Michigan, which saw its factory sector crushed by the recession and the near-collapse of the automobile industry, has seen relatively strong job growth amid the economic recovery. Michigan’s factories have added 63,000 jobs in the past three years, representing 13.5% growth, though employment remains far below pre-recession levels.

Factory jobs pay $1,011 a week on average in Michigan, not including health and other benefits, making it one of the top-paying states. By contrast, factory workers in right-to-work South Carolina earn $866 a week on average.

“Companies will be more seriously inclined to look at a state if it’s right-to-work,” said Mark Arend, editor in chief of Site Selection, a corporate real-estate magazine. Once a state passes a right-to-work law, nearby states worry about becoming relatively less appealing, he added.

Compensation costs are generally higher in parts of the country with strong union traditions. In the Midwest, for example, where unions have historically been powerful, employers pay an average of $28.15 per worker per hour—factoring in both wages and benefits—while in the South, the average is $26.32 an hour.

Advocates for the law in Oklahoma, which passed in 2001, said they pushed for the legislation because they were worried about losing business to Texas, a neighboring right-to-work state. Oklahoma’s economy has fared much better than the nation’s as a whole since then, but it is hard to know how much the law has contributed, given the state’s oil-and-gas boom.

The jobless rate in Oklahoma was below the national average for much of the 1990s, and, at 5.3% in October, is one of the lowest in the nation now. In addition to the right-to-work law, Oklahoma has introduced in recent years a set of incentives for businesses based on the number of jobs they created. And the expansion of two military bases lured aerospace companies, creating white-collar engineering jobs that put upward pressure on wages.

“Given the context of our economic performance over the past several years, it’s difficult to say that right-to-work in any shape or form hampered us, which would lead you to believe it was a help,” said Deidre Myers, director of policy, research and economic analysis at the Oklahoma Department of Commerce. “But there are no exact data that can quantify the impact of right-to-work as a single policy.”